1. Reporting requirements in Auditor’s Report as per recent changes under Companies Act, 2013
CA Anil Mathur

2. Reporting on Internal Financial control
The Companies Act, 2013 after its enactment has undergone many changes in relation to legal and procedural requirements.
Recent major changes in reporting requirements by an auditor are broadly under following heads:-
Specified Bank Notes
Cash Flow Statement
Reporting on Internal Financial control
Companies(Indian Accounting Standards) Rules,2015
Changes in Schedule-III- General Instruction for preparation of Balance Sheet & Statement of Profit & Loss
Change in audit report under MAT
CARO-2016

3. 1. Specified Bank Notes
MCA has issued a notification No. G.S.R. 308(E), dated by virtue of powers conferred u/s 467(1) of the Act.
It has resulted in changes in disclosure in Financial Statements as well as reporting requirement in Audit Report
a) Disclosure in Financial Statements :-
Schedule-III, Division – I, Part I amended. Para 6 of “General instruction for preparation of Balance Sheet” amended by insertion of a new clause ’X’ after existing clause ‘W’ .

4. Other denomination notes
X. Every company shall disclose the details of Specified Bank Notes (SBN) held and transacted during the period from 8th November, 2016 to 30th December, 2016 as provided in the Table below:-
SBNs
Other denomination notes
Total
Closing cash in hand as on 08/11/2016
(+) Permitted receipts
(-) Permitted payment
(-) Amount deposited in Banks
Closing cash in hand as on 30/12/2016

5. Similar amendments have been made in Division-II in part I of Schedule-III under the same heading in para 6. A new clause ‘K’ has been inserted after existing clause ‘J’
Specified Bank Notes (SBN) shall have the same meaning as provided in notification dated issued by Department of Economic Affairs, Ministry of Finance.

6. b) Reporting Requirement in Auditor’s Report
Amendment carried out in Companies (Audit & Auditors) Rule, 2014 by notification No. G.S.R. 307(E), dated
Following clause (d) to Rule 11 added :-
“(d) whether the company had provided requisite disclosures in its financial statements as to holding as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the Company.”
This reporting requirement is to be reported under the head “Other matters to be included in the audit report”

7. Certain practical issues
Certain practical issues During the audit, an auditor may come across following two main situations :- (a) Situation 1 : Clause is not applicable (b) Situation 2 : Clause is applicable
Company has not provided requisite disclosure
Company has provided only part of requisite disclosure
Company has provided requisite details but auditor is unable to verify the same
Company has provided requisite details and auditor is able to report on same

8. Suggested reporting by auditor
The reporting by auditor will depend on facts of each case. Some of such reporting may be as under:-
Situation -1 – clause is not applicable
“The company did not have any holdings or dealings in Specified Bank Notes during the period to Refer Note( -- )”
Situation 2(a)
“ The company has not provided requisite disclosures in the financial statements as to holdings as well as dealings in SBN during the period 8th November 2010 to 30th December 2016”
Situation 2(b)
“ Refer Note ( --- ). The Company has not provided details as per MCA notification dated in respect of SBN. The details of SBN held and transacted were provided in respect of Head Office only. The company has not reported such figures in respect of its branch.”

9. Situation 2 (C) The company has provided requisite disclosures as to holdings as well as dealing in SBNs during the period to However, we are unable to obtain appropriate and sufficient audit evidences to report whether the disclosures are in accordance with books of accounts maintained by the Company: Refer Note (--) Situation 2 (d) “ The company has provided requisite disclosures as to holdings as well as dealing in SBNs during the period to Based on audit procedures and replying on management representation, we report that the disclosers are in accordance with the books of accounts maintained by the Company- Refer Note (--)

10. 2. Cash Flow Statement
Vide notification no. G.S.R. 583 (E), dated in exercise of power in pursuance of sec. 462 of the Act, Section 2(40) of the Companies Act has been amended.
For the existing proviso in the clause(40) of sec.2 following has been substituted.
“Provided that the financial statement, with respect to one person company, small company, dormant company and private company (if such private company is a startup) may not include the cash flow statement.”
Start up company means a private company and recognized as startup in accordance with notification issued by DIPP.

11. 3.Report on Internal Financial Control
Vide the above referred notification clause(i) of sub section 3 of section 143 of the Act relating to matters to be stated in the auditor’s report has been amended.
Clause(i) of section 143(3) “Shall not apply to a private company”:
(i)Which is a one person company or a small company; or
(ii)Which has turnover of less than Rupees fifty crore as per latest audited financial statement or which has aggregate borrowings from banks or financial institutions or a body corporate at any point of time during the financial year less than rupees twenty five crore”
**word “or” substituted by “and” by corrigendum dated

12. 4. Companies (Indian Accounting Standards) Rules, 2015
a) Introduction
Notification no G.S.R. 111(E), dated issued by Central Government in consultation with NACAS making these rules
These Rules are effective from 1st April, 2015
These Rules formulated specifying the applicability of Accounting Standards to various classes of Companies

13. b) Applicability
Indian Accounting Standards(Ind AS) shall be the accounting standards applicable to companies specified in rule 4 of the Rules
Accounting Standards as specified in the Companies (Accounting Standards) Rules, shall be applicable on other companies.
A company which is required to follow either of Standards shall follow such accounting Standards only.

14. c) Obligation to Comply with Ind AS
Companies and their auditors shall comply with Ind AS as specified in these Rules in preparation of their financial statements and audit.
Voluntary for any company to comply with Ind AS for period commencing on or after 1st April, 2015 with comparable for period ending 31st March, 2015 or thereafter.
Insurance, banking companies and NBFCs are exempted to comply voluntary or mandatory Ind AS provisions

15. Mandatory from accounting period 2016-17
Listed Companies or Companies in process of listing on any stock exchange in India or abroad and having net worth of Rs. 500 crore or more .
Non listed companies having net worth of Rs. 500 crore or more
Holding, subsidiary, JV or AE of above companies

16. Mandatory from accounting period 2017-18
Listed companies or companies in process of being listed on any stock exchange in India or abroad and having net worth of Rs. 250 crore or more but less than Rs. 500 crore
Unlisted companies having net worth of Rs crore or more but less than Rs. 500 crore
Holding, subsidiary, JV, or AE of above companies

17. Net Worth
Net worth shall be as defined in section 2(57) of the Act, i.e. paid up capital and reserve plus security premium but excluding revaluation reserve
Net worth shall be calculated on the basis of stand alone financial statement as on or first audited period which ends after that date.

18. 5. Amendment to the Schedule-III of the Companies Act, 2013
Vide notification no. G.S.R.404(E), dated , Schedule - III of the Act has undergone some structural changes.
The Schedule-III is now divided into two divisions:-
Division – I : relates to financial statements for a company whose financial statements are required to comply with the Companies (Accounting Standards) Rules,
Division – II : relates to financial statements for a company whose financial statements are required to comply with the Companies (Indian Accounting Standards) Rules, 2015.
The disclosure requirements specified in this Schedule are in addition of the disclosure requirements specified in the Ind. AS.

19. 6. Amendment to the Audit Report for MAT as per sec
6. Amendment to the Audit Report for MAT as per sec.115JB of the I T Act.
Section 115JB of the Income tax Act has been amended w. e. f wherein sub section (2A) to (2C) have been inserted.
Such amendment require adjustment to book profit for a company whose financial statements are drawn up in compliance to the Ind AS specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015.
Audit report under this section has been amended to specify the impact of adjustments, if any as per newly inserted Rules.

20. 7. Companies (Auditor’s Report ) Order, 2016
a) Introduction :
MCA has issued CARO, 2016 on
This order is in suppression of CARO, It is applicable to financial statements of companies for period beginning from
Applicable on all companies including foreign company but does not apply on consolidated financial statements
CARO, as compared to CARO, has some additional clauses , some clauses have been changed and few deleted .
Total no. of clauses now is 16 against 12 of CARO, 2015.

21. b) Companies not covered by the Order :-
Banking Companies
Insurance Companies
Company licensed to operate u/s 8 of the Act
OPC and small company
Following types of private companies :-
Which is not holding or subsidiary of a public company
Having a paid up capital and reserves & surplus not more than 1crores as on balance sheet date and which does not have total borrowings exceeding from bank or FI at any point of time during the financial year and doses not have total revenue exceeding 10 crores as disclosed in Schedule - III of the Act.

22. Comparative view of CARO, 2015 and CARO, 2016
Clauses amended or retained :-
CARO 2015
CARO 2016
Fixed Assets
Retained with some changes
Inventory
Loans to related parties
(sec. 189)
Deposits
Retained
Cost records
Statutory Dues
Repayment of loans
Term Loan
Retained with inclusion of IPO & FPO

23. Comparative view of CARO, 2015 and CARO, 2016
Clauses deleted :-
Adequate Internal Control
Accumulated losses
Guarantee
Clauses inserted :-
Loan, Security & Guarantee
Related party transactions
Managerial remuneration
Private placement
Non cash transactions
NBFC